Greek banker Papademos joins coalition talks

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Lucas Papademos, a top former European Central Bank official, joined Greek political leaders at power-sharing talks Thursday, becoming the front-runner to lead an interim coalition government.

The interim government is being formed to make sure debt-strapped Greece gets its latest bailout payment and to approve a new euro130 billion ($177 billion) international rescue package from eurozone partners and the International Monetary Fund.

Greece is under growing international pressure to hammer out a coalition deal that would likely run the country until early elections in late February, after ratifying and negotiating details of the new debt deal. That deal is the country's second massive bailout, after a first euro110 billion ($150 billion) rescue package was deemed not enough to keep Greece from bankruptcy.

Papademos, a former ECB vice president who is not a member of any party, joined the talks two hours after the meeting started between Socialist Prime Minister George Papandreou and conservative opposition leader Antonis Samaras. Papandreou has promised to quit when the coalition deal is reached, but the talks have repeatedly stalled since Papandreou and Samaras made the historic commitment Sunday to forge a unity government.

Papademos has been operating lately as an adviser to the prime minister.

Shares on the Athens Stock Exchange were up 2.1 percent at 783.28 on the prospect of a power deal. That came despite more bad news for Greece's recession-hit economy: unemployment surged to 18.4 percent in August, up from 12.2 for that month in 2010.

Other eurozone nations have refused to give Greece its latest installment of bailout cash -- euro8 billion ($11 billion) -- until the country approves the second bailout deal, which took European leaders months to hash out.

The markets want clarity soon so the new government can secure bailout cash to avoid an imminent bankruptcy that could push Europe into a new recession and world financial markets into turmoil.

Greece's deliberations over the past few days have taken a backseat to developments in much-bigger Italy, where Premier Silvio Berlusconi has announced his intention to resign soon after a new package of economic reforms are passed. But concerns over a prolonged political gridlock in the eurozone's third-largest economy -- Italy is considered too big for Europe to bail out -- have roiled the markets. Italy's borrowing costs shot through the roof Wednesday, tempered only a bit by a hasty promise from Italy's president that Berlusconi would be out of office by Monday.

Europe has already bailed out Greece, Portugal and Ireland -- but together they make up only about 6 percent of the eurozone's economic output, in contrast to Italy's 17 percent.

The new Greek debt deal would also see private bondholders cancel 50 percent of their Greek debt holdings -- and many analysts fear that Italian bond holders could one day also be required to forgive some of Italy's massive euro1.9 trillion ($2.6 trillion) debt.

Thursday's meeting in Athens, convened by Greek President Karolos Papoulias, was also attended by the leader of the rightist LAOS party Giorgos Karatzaferis.

Socialist lawmakers had pressed Papandreou to step down after his proposal to hold a referendum on the new debt deal -- a plan that was swiftly withdrawn after an angry reaction from world markets and EU leaders.

Despite three days of wrangling and intense European pressure, Greece's main parties have been unable to agree on who will lead the new government. Socialist deputies expressed fierce opposition earlier to reports that parliament speaker Philippos Petsalnikos was to be named as coalition prime minister, state-run NET reported.

"This is the third time I'm coming here for (this) issue, and I hope it's the last," Samaras said Thursday as he arrived.

The head of the IMF, meanwhile, pressed for a quick resolution.

"I believe that many lenders, many investors actually expect something to happen to give political clarity," IMF chief Christine Lagarde said during a visit to Beijing. "It's much needed in Greece, it's much needed in Italy. There is clearly some rumors, trepidation, expectations. No one really understands who is going to come out as the leader, and I think that confusion is completely conducive to volatility."

The European Union, meanwhile warned that the 17-country eurozone could slip back into "a deep and prolonged" recession next year as the debt crisis spins out of control.

The EU's economic watchdog, the European Commission, predicted Thursday that the eurozone will grow only a paltry 0.5 percent in 2012 -- way down from its earlier forecast of 1.8 percent growth. EU unemployment will be stuck at 9.5 percent for the foreseeable future.

The report also predicted growth in Italy would slow to 0.1 percent next year, down from 1.3 percent forecast this spring.

It also warned that Italy is unlikely to balance its budget by 2013 if recently promised austerity and reform measures aren't implemented. If those measures don't happen, Italy will still run a deficit of 1.2 percent, with debt close to 119 percent of economic output.